Dr. Musa Ghaninejad is an economist and member of the San'at-e Naft University's faculty. In an interview with Rooz, he discusses Iran's present economic conditions, characterized by rising inflation, and stresses that inflation would rise even more in the coming months and years unless strict anti-inflationary monetary and fiscal policies are implemented. Below is the text of this interview.
Rooz (R): It was expected that the injection of oil revenues into productive sectors of the economy would effectively create jobs and contribute to economic growth, controlling inflation, increasing exports and, finally, reviving the economy. Why did this not happen?
Musa Ghaninejad (MG): Increased oil revenues could be a contributing factor to the increase in monetary supply and inflation, which is the case in Iran. With the rise in oil prices, the government's oil revenues also increased, and our foreign currency reserves have gone up. Whenever the administration lacks funds, it uses various methods including new budget bills or obtaining help from the Majlis to convert foreign currency reserves to Rial, increasing the amount of money in circulation, thus increasing the monetary supply. We must not think that when oil revenues increase our economic problems are systematically resolved. It is quite the opposite; our economic problems are exacerbated when oil revenues are not managed well. In these few years we have lacked effective management of our foreign currency reserves, easily converting them to Rials, heavily increasing monetary supply, which has led to inflation.
R: In the science of economics, it is a well-understood basic principle that increasing monetary supply directly creates inflation. What happened that this basic principle was neglected in our country and such a huge amount of cash was injected into the banking system?
MG: All governments, including the present government of Iran, try to solve their problems the easiest way. One of the easiest way to solve financial problems is to use oil revenue reserves. Even though previous administrations did this as well, the considerable rise in oil prices has enabled the present administration to solve its problems in this way much more easily. As a result, they have reverted to those policies, and we witness the results. Therefore, a powerful and united national will is needed to reverse this trend and institute orderly financial policies in the country. At present, I do not see a bright prospect.
R: Why do you think the future is not encouraging? Are there no signs that conditions would improve in the comings months and years?
MG: In any case, we are only a year away from (presidential) elections, and electoral battles have already begun, albeit in a hidden, behind-the-scenes manner. Under such conditions, it is obvious that the administration would not tolerate imposing any kind of order on the economy and fuel the perception that it does not want to increase expenditure and continue its previous generosity. Therefore, I think it is unlikely that a strict monetary policy will be implemented. A more important factor is that those who are managing the country's economic affairs do not believe in the conventional paradigm in the science of economics that we talked about. Or, at least that is what they say. And because they do not think within that framework and do not believe in it, the policy that we have is the result of the process that I mentioned.
R: If the present financial and monetary policies continue, what would be the country's economic conditions next year?
MG: Because a large number of variables affecting the economy are uneconomic in our society, and they are management and political issues, it is very difficult to predict how things will be in future months. Decisions could change at any moment and they in turn affect economic variables. Therefore, I shy away from making general predictions. The general trend, however, is that inflation will continue to grow, unless a serious brake is applied to the present expansionary monetary and financial policies, and strict policies are implemented with respect to financial and monetary processes. Given the country's present conditions, I do not think that such reforms are probable, although I hope they happen.
